UPDATE 1-Indian government wins second vote on retail; more reforms eyed

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Last Updated: Sat, Dec 08, 2012 18:41 hrs

By Nigam Prusty and Satarupa Bhattacharjya

NEW DELHI, Dec 7 (Reuters) - The Indian government won a
second parliament vote on Friday on allowing foreign
supermarkets into the country, paving the way for Prime Minister
Manmohan Singh to press ahead with more reforms, including
freeing up a cash-strapped insurance sector.

While the upper house vote was symbolic, the government's
victory is a boost for its push to implement a controversial
economic reform agenda that is seen as crucial to reviving
growth and reducing a bloated fiscal deficit.

The government had already won a vote on retail reform in
the lower house two days earlier. The policy will allow global
retailers such as Wal-Mart Stores Inc to set up shop in
the country's $450 billion retail sector, and is aimed at
drawing more overseas investment and taming inflation.

Although both votes were non-binding, defeat would have
piled pressure on Singh to roll back the measure.

Once again, Singh's fragile coalition government relied on
Friday on the outside support of two parties based in the state
of Uttar Pradesh, underscoring the extent to which it is at the
mercy of powerful regional groups to push through legislation.

SHOUTING AND WALKOUTS

In the shrinking window before a general election that is
due in just over a year, Singh's minority government wants to
push reforms such as allowing more foreign investment in its
insurance and pension sectors, and simplifying tax laws.

But these are likely to run into a wall of opposition from
rival parties that say such market-friendly reforms will come at
the expense of domestic businesses.

Singh's Congress party has 10 days left before the end of
the current parliament session to try to pass legislation.

However, the session could once again see the kind of
disruption and walkouts that have repeatedly stalled business
over the last couple of years. Lawmakers have used them to air
grievances on anything from corruption to demands for the
creation of a new state in the south.

Moreover, the main opposition Bharatiya Janata Party (BJP),
having seen its motion to block retail reform defeated, is
likely to obstruct moves to allow foreign direct investment
(FDI) in the insurance sector. The BJP wants a 26 percent cap
set on investment, against the government's proposed 49 percent.

"We will oppose any move by the government against the
recommendations of the standing committee on finance which has
said it should be 26 percent," Prakash Javdekar, a BJP leader
and spokesman for the party, told Reuters on Friday.

To carry on with reforms, Singh's Congress party will have
to rely on the support of the Bahujan Samaj Party (BSP) and the
Samajwadi Party (SP), which are both based in the populous
northern state of Uttar Pradesh, to defeat the BJP.

In Friday's vote BSP lawmakers voted with the government and
SP deputies abstained, handing it a 123-109 victory.

"The regional parties supported the Congress party on retail
reform and my feeling is that they will continue to do so
because they don't want to give BJP any political advantage,"
said political analyst Amulya Ganguli.

India's economy is set to grow at its slowest pace in a
decade in this fiscal year, and the government's overspend on
subsidies on fuel and food has prompted global ratings agencies
to warn of a downgrade.
(Writing by Matthias Williams; Editing by Alex Richardson)